. . . Real Estate Law Lecture Notes: Finance . . . . ..
. . . . .
MORTGAGES, DEEDS
OF TRUST, SECURITY DEEDS
Security Documents:
Mortgage:
Title remains in owner, but there is an encumbrance. Still widely used. Foreclosure
required. Will frequently require recordation, just like deeds.
Deed
of Trust: A trustee holds legal title with fiduciary duties to the lender
and buyer. Trustee holds in trust with power to sell property and use proceeds
to pay off loan.
Security
Deed: Borrower deeds property as security to lender. Lender may sell property
on the condition the debt is not paid
Features
of all security documents:
- Requirements of a mortgage:
-
Must
meet all deed formalities: parties, conveyance, property, execution, and
delivery.
-
All
owners must sign.
-
The
parties are the mortgagor, and mortgagee. The borrower/buyer of the property
is the mortgagor. The lender/secured party is the mortgagee.
-
secured
debt: There must be a valid debt, with a precise amount and a precise
date due or final maturity date. Mortgages can, however, be written to
secure all debt, past, present or future. (open-ended mortgages.)
-
secured
property: If real estate is the security, the description must be the
same as on a deed. Legal. But, property can be later added or released
by amendment or modification. But, for questions of priority, the date
of the modification, not the date of the mortgages, rules.
-
assignment:
Freely assignable, usually with the transfer/assignment of the note.
-
transfer
of property encumbered by mortgage: There is frequently a "due on
sale" clause which makes the entire unpaid balance due if the property
owner sells the property to another person.
-
Distinction:
A sale "Subject to" a mortgage, or a sale with an "assumption"
of a mortgage. In a sale "Subject to" The new buyer doesn't
have personal responsibility for debt. The new buyer just makes payments
as needed to protect the property from foreclosure. The new owner cannot
be personally sued on the debt.
But on an "assumption" sale, the new buyer assumes the debt
and becomes personally liable on the debt. The originally owner, however,
remains liable on the debt.
-
Cancellation
or satisfaction: Automatic release by full payment. But the mortgagee
has a duty of filing a satisfaction/cancellation of the mortgage, or executing
a deed. (In some counties, there will be a handwritten note on the margin
of the recorded mortgage noting the mortgage has been paid off.)
-
second
mortgages. Risk: all mortgages are foreclosed in a foreclosure sale. (Debt
remains)
